House of Cards

By Ted McIntyre

Christine Newman and her fiancé Andrew Morris figured they’d done everything right. Newman, who is completing her Masters at Trent University while working full-time, and Morris, who teaches special needs students at R.S. McLaughlin Collegiate & Vocational Institute in Oshawa, met three years ago. “But we always joke that we met a year too late,” says Newman. “We were both saving for a home separately. But we missed the window. Now we have a chunk of money sitting, waiting for the market to hopefully drop.”

The couple is renting a three-bedroom home in Ajax, where they’ve started a respite business, taking in young adults with special needs, to help offset their monthly rent of $1,450, not including utilities.

“I’m 28 and he’s 33 and we still don’t own a house. We’re thinking we have to have kids soon. If you’d asked two people—each with two university degrees—whether they were going to raise their family in a rental unit, they’d have thought you were crazy. But nowadays it’s the norm.”

A host of measures implemented by Ontario Premier Kathleen Wynne in April and a more stringent mortgage approval process have helped douse the red-hot housing market in Southern Ontario. But even if the market remains flat for the next decade, there is little chance of playing catch-up for today’s youth.

“It’s a hard time to be a younger person,” Newman says. “People are graduating with $60,000 student debts and few full-time jobs available—the job market gives you contracts now. You’re commuting an hour to work because you can’t afford to work where you live. And somehow you have to save $100,000 for a down payment while paying high rents. It’s discouraging.”

Indeed, the idea of purchasing a house is becoming as foreign a concept to many as quantum physics. “We know other couples with middle-income government jobs who aren’t even considering buying a house anymore,” Newman says. “We want to own a house, but whereas previous generations will have (their home equity to fall back on), many in my generation might still be paying off their $700,000 mortgage when they retire.”

A little math puts it in perspective. Weekly wages in Ontario over the past 20 years have risen from an average of $605.82 in 1997 to $958.50 today, according to Statistics Canada—an increase of 58%. By contrast, however, the average price of a new single or semi-detached home in Ontario was $222,830 in 1997. Today it’s $694,632. That’s an increase of 212%. When home prices are outpacing income by nearly four times, it’s difficult for today’s youth to make that initial investment and to gradually build from there, as their parents did before them.

And it’s not just a GTA thing. A recent Environics survey commissioned by Genworth Financial determined that the proportion of first-time homebuyers across the country has declined from 7.3% in 2015 to 5.8% in 2017. That’s a 21% drop.

RBC’s most recent Home Ownership Poll, confirms the trend. Of those aged 18-24, 57% said in 2016 that they were unlikely to buy a home in the next two years. That figure has jumped to 69% in 2017. “Millennials are also looking for alternative ways to help them get into their first home,” says Nicole Wells, V.P., Home Equity Financing, RBC. “Based on findings from that poll, we know that there is a trend of millennials seeking help from family to buy their first home (19% vs. 13% last year).”

A GENERATION OF RENTERS?

What might that mean in 35 years or so? Richard Worzel, Chartered Financial Analyst and leading futurist, worries about a high number of young Ontarians retiring without the equity of home ownership. “Young people have an increasingly difficult time getting a foot on the ladder of advancement,” says Worzel. “You have 30-year-olds still trying to get their first full-time job. Add that to the lack of affordability of housing and you’re creating a generation where a large portion will be forced to be renters.”

While he acknowledges affordability is currently a challenge for many, Paul Golini, co-founder and Executive V.P. of Empire Communities, considers much of it growing pains for Toronto. “I think it’s a natural evolution, as within most growing, maturing metropolitan cities. As you mature, you have more and more renters, because affordability increasingly becomes an issue, but also because of many people’s changing behaviour and needs—wanting to stay more nimble and not anchor themselves in a property.”

But if modern financial stresses are trending in a rental direction, we’re not yet building for it, suggests Ernie Hardeman, PC Party MPP for Oxford and Ontario Municipal Affairs and Housing Critic. “We need to build housing that meet the needs of intensification,” says Hardeman. “But the challenge for builders is that it takes far too long and is too expensive from the time they purchase a piece of property to the time people are actually living in those homes. We have to find a way to increase the supply across the spectrum, but to also make it a better investment for builders. Because as we go down the road, there will be fewer and fewer rental units if the industry can make a lot more money building homes for purchase, even if there are fewer people to purchase them.”

Streamlining the procedure is essential for the future, suggests Golini, particularly when it comes to the provincial mandate of densification. “The challenge to higher density is that we don’t have the appropriate zoning in place,” Golini notes. “It’s still taking excessively long to get through approvals and rezoning. We have a provincial government mandating certain policies, which are not in sync with municipal policies, which are not in sync with federal policies. We have a mishmash of a regulatory environment that is making if difficult to implement and execute the overarching mandate of Places to Grow.”

That tangled red tape “will directly increase housing prices in the next decade,” suggests Hugh Heron, president of Heathwood Homes and Heron Homes. “Every bit of policy procedure makes it more difficult to get things approved. It’s like growing avocados or tomatoes—if there’s a problem growing them, the price will increase.

“As I see it, we’re in a very unique position in Toronto,” says Heron. “We’ve got great demand for housing accompanied by low interest rates. We have over 100,000 people moving to Toronto every year and there’s not an awful lot of land. We have 6 million people in the area—roughly 3 million in Toronto and 3 million in the 905. We have one mayor for Toronto’s 3 million and a multitude elsewhere else. And we’re going to double our population in 20 or 30 years. We need an overall plan for the GTA, and I’m not sure that will ever happen.”

Part of that master plan must include designs for walkable and bikable communities, with the required social services and mass transit nearby, says Gideon Forman, Climate Change and Transportation Policy Analyst with the David Suzuki Foundation. “It’s a balancing act. We cannot have people driving a lot if we’re going to try to make any progress on climate and congestion.”

Supplying that necessary infrastructure, however, could be impeded by the added economic strain of health care in the decade ahead, cautions Worzel. “As people age, the amount you spend on health care remains roughly the same each year up until the age of 55. But then it goes up almost exponentially,” Worzel notes. “The Baby Boomers—the biggest generation in history—are moving into the high rent district of health care. Governments could be placed under extreme financial pressure.”

In that respect, builders would be well advised to evolve their aging-in-place home designs, says Worzel. “It’s one of the best solutions to redesigning the health care system in terms of more cost-effective medical support and nursing.”

With fewer full-time jobs and commuting an increasing nightmare, architectural designs should also cater to an increasing number of those working from home, Worzel recommends.

THE SEARCH FOR LAND

Any building plans, of course, hinge on land availability. The evolution of six-storey wood development should assist in the pursuit of densification, Golini suggests, while Heron sees “more back-to-back townhouses and five-and six-storey units.”

Still, Golini doesn’t see a change in the breakdown of his current builds. “Right now, 50% of our projects are single-family residences,” he says. “I think we’ll still be 50/50 ten years from now. We’ll continue to meet the needs of the new-home buyers seeking to live in urban centres in condos, and we have a decent pipeline of product outside the city.”

Forman appreciates the demand for land, but cautions that we can ill afford to jeopardize any of the existing greenbelt or farmland. “We have excellent farmland in Ontario and we don’t want to eat that up with subdivisions,” says Forman. “We have to protect that land for a range of reasons, not the least of which is to grow food. We need forests for keeping our air and water clean. I was just reviewing a book called The Nature Fix, and it talks about the importance for our health to be in touch with nature. We have to protect those natural spaces, especially as the population balloons.”

Golini expects further tweaking and trade-offs when it comes to sensitive lands, “but I don’t foresee us carving out the greenbelt for development—that’s for sure,” he says. “The big opportunity is with the white belt, the urban reserve, (and whether) we can move some of those lands into the urban boundary so that they can become a reserve for additional growth. From a federal level, we want to attract foreign direct investment and industry and jobs, but that means we need to house all these people who are living and working and spending money.”

NET ZERO READY BY 2030

Whatever the classification or location of future builds, they will be more energy efficient than now, thanks to government plans to be Net Zero Ready by 2030, with a renewable energy target for 2050. But is that a realistic target?

“Societies make possible what they want to make possible,” says Forman. “Germany—a big, heavily industrialized country—is doing remarkable things. When I was there in 2015, naysayers were observing, ‘The grid won’t be able to tolerate more than 7% renewable energy.’ Now they’re at about 33%!”

There will be a learning curve, though, says Golini. “The manufacturing sector has to be able to keep up with the products that will help make us get to the Net Zero homes. Then there’s the learning curve for the actual trades and contractors—and the builders themselves, and the building code enforcers in the cities and municipalities. It’s just the tip of the iceberg of a greater industry that needs to be brought along when we talk about building these Net Zero communities. We can build a one-off or 30 homes, but if we have to build 40,000 new homes in 2030 and they all have to be Net Zero, we still have a long way to go to make sure all the pieces are lined up.

“But then we still haven’t developed some of the technologies that will get us there—we don’t know what we don’t know,” adds Golini. “A year from now there will be something new. We’re just flirting with inverters and battery storage, such as the Panasonic battery we have in some of our Discovery homes. And we talk about all cars being plug-ins. As of today, if everyone had a plug-in car, we wouldn’t have the capacity for it. So the infrastructure and the grid all have to be looked at as we move toward Net Zero homes.”

Worzel believes new technology will accelerate the process. “I think renewables are going to happen more quickly than most people think,” he says. “They’re already competitive with fossil fuels without government subsidies now—particularly solar, the cost of which is continuing to decline at almost computer speeds.”

With billions of dollars being poured into batteries and energy storage, the future will also look very different for utility providers. “I’ve seen solar panels that unroll and are basically glued to a roof. And there’s a group in Australia developing solar panel paint! People are going to start using it not because it’s the green thing to do, but because it makes financial sense,” Worzel notes. “I think power utilities will then say, ‘You don’t want to buy power from us? Fine. We’ll sell and install the solar panels for your house and we’ll take a percentage of the profit for doing so.’ I’ve been talking to power utilities about this for years now. They should think of themselves as the regional battery—buying and selling power at an industrial level at far greater cost effectiveness than people can do themselves.”

Forman also expects the sun to shine on renewable energy. “We’ll see more and more solar panels on roofs for sure. I also think we’ll see more wind power in rural areas. And I’m hopeful we’ll see more geothermal in cities, particularly where it’s supplying heat for entire neighbourhoods.”

DRIVING INTO THE FUTURE

Electric Vehicles are also the wave of the near future, says Forman. “Buildings will be more configured for electric vehicles, since lots of homeowners will have plug-ins. The cost of EVs is coming down, the cost of fuelling them is a fraction of internal combustion cars, and the maintenance is very, very low. They’re so much more efficient than internal combustion engines. And in terms of emissions and addressing climate, they’re phenomenal.”

Or maybe there will be fewer cars altogether! “A contrary trend is the rise of autonomous vehicles,” says Worzel. “And if that’s the case, consider that almost a third of the real estate in major urban centres is devoted to parking. So if the ownership of cars drops precipitously—and it might—then some of that land should get freed up for development.”

WATER TIGHT

Another quickly evolving trend is water conservation. “The idea that we use this high-quality drinking water to run our toilets is nuts. We need to be using grey water. It’s a no-brainer,” says Forman, highlighting initiatives at Queen’s University.

Forman predicts that all condominium buildings will collect rainwater and feature solar cells and green roofs, the latter of which also help cool off buildings in the summer, lowering electricity costs. “It’s also relaxing to be gardening; it’s a community builder,” says Forman.

Such a trend will likely be paralleled by the rise of companies such as Montreal-based Lufa Farms, which designs high-tech hydroponic farms atop corporate and condo roofs.

As always when peering into the future, the most reliable prediction is change, suggests Golini. “We’ll see improvements in mechanical systems for sure, as well as the efficiency of some of the renewables. We’ll also see some innovation in how we build our homes in terms of panelization and more of a manufacturing approach. Are we going to have bricklayers in 10 years? Who knows? If we want brick on the outside of our homes, maybe there’s a machine applying brick to the outside of panels. It’s a balancing act of being ahead of the curve, of future-proofing our homes based on what we think will be the technologies of tomorrow, but not going so far ahead that we can’t really execute when it comes to building production housing.”

Some of the old fears remain for the future of home building, including a dire shortage of trades. But both Heron and Golini say they’re high on the future. “I think the fundamentals are all there for a healthy market,” Golini says. “Obviously for young new families trying to find a home, it’s not easy. But it’s part of the growing pains of being the young country that we are, but one that still has lots of opportunity.”